How Inter-generational Wealth Transfer Will Transform Philanthropy

Within the next 20-30 years, between £4-£5 trillion will be passed down to inheritors in Canada, the UK, the US and Australia. If only 10 percent of this wealth went to selected charities, it would have the power to utterly transform the charity sector.

Past favourable circumstances have led our Baby Boomers — the post-Second World War generation who have made a significant impact on the economy — to become the wealthiest older generation to date. Now in their late 60's and 70's, the Boomers are poised to transfer an unprecedented amount of wealth to the next generation.

The increased value and number of transfers set to take place over the next two decades presents the opportunity of a generation for major philanthropy. If only 10 percent of this wealth — that’s between £400-500 billion — went to selected charities, it would have the power to utterly transform the charity sector.

According to the Coutts Million Pound Donors Report 2017, philanthropy is increasingly becoming a central feature of wealth succession, whether or not children are on the scene. Donations to charities are now commonplace in wills and the establishment of family charitable trusts are often seen as a beneficial way to equip the next generation with the skills and knowledge required for successful wealth management. Moreover, some individuals are committing to giving most of their wealth to charitable causes on their death, rather than to family or friends.

The Giving Pledge, for example, is making this kind of philanthropic giving more visible. Created by Bill and Melinda Gates and Warren Buffett to expand levels of generosity among the ultra-rich, the Giving Pledge invites the world’s wealthiest individuals and families to “commit to giving more than half of their wealth to philanthropy or charitable causes either during their lifetime or in their will”. Now including 175 of the world’s wealthiest individuals, up from 40 signatories in 2010 — and with many of these individuals set to give through their wills — the Giving Pledge highlights the potential that upcoming wealth transfer holds for philanthropy. According to the latest Wealth-X Billionaire Census, the potential pledged value could be as high as US$600 billion by 2022.

But this upcoming wealth transfer (what the Financial Times is calling “one of the biggest inter-generational wealth transfers in history”) pales in comparison with the transfer forecasted to happen between Chinese billionaires and their heirs in 40 years’ time. Despite the Chinese proverb, “wealth does not pass three generations”, China has never before had such exceptional wealth creation and, with it, such exceptional capacity for transferring wealth.

According to the UBS and PwC Billionaires Report 2016, Asia is creating one billionaire every three days through the success of young entrepreneurs working in technology, consumer and retail and real estate, and Chinese billionaires are retaining this wealth, despite setbacks. Inevitably, this huge creation of wealth will soon be followed by an even larger wealth transfer than that of Europe, Australia, Canada and the US when it comes. Given that, based on all the recent research, China is set to become the fastest-growing philanthropic market of the last century, charities and fundraisers must make preparations for this second wave of major giving.

How UHNWIs and HNWIs choose to transfer their wealth to the next generation is of critical importance — both to the perpetuation of their family legacy, and the impact they will have on society. Rebecca Constable, director of private banking at Kleinwort Hambros, recognises that transferring wealth isn’t just about preserving it, but about creating a legacy that fits with your values. She adds that if the current generation successfully passes on its knowledge, as well as its wealth, to the next generation, they will enable inheritors to achieve greater success in wealth preservation, driving economic growth and having a long-term impact on society.

It seems that, for organisations dependent on major donors, an opportunity of a generation has arrived. Over their lifetimes, UHNWIs and HNWIs’ wealth has accumulated; now in their mature stages of life, they will be looking to transfer their wealth to the next generation. If this inter-generational transfer is handled wisely, this could have implications beyond this generation’s imagination.